Fed Interest Hike: No One Has A Crystal Ball

It’s been months and investors are tired of asking the same old question: Will the Fed raise interest rates or will it hold off for another time? The consensus seems to be that the Fed can hold back no longer and the hike will definitely happen.

Wall Street experts seem confident that a rate hike is imminent, with 49 percent surveyed agreeing that the central bank will make the move.

a 3% interest hike would send a message of confidence …saying the economy is strong [and] it can handle normal interest rates.

Jim Grant, market maker and editor of Grant’s Interest Rate Observer believes that Fed Chair Janet Yellen has had enough of the subject and that she will go ahead with the rate increase in order to just put an end to the discussion. Grant sees a .25 point hike.

3% Increase Suggested

Morgan Creek Capital Management CEO Mark Yusko, however, believes that the Federal Reserve should stop taking baby steps and should raise interest rates to 3 percent in one fell swoop. He argues that although such a move would shock the markets, “it would send a message of confidence …saying the economy is strong [and] it can handle normal interest rates.”

Taking an opposing view, Torsten Slok, chief international economist at Deutsche Bank, thinks the Fed should hike rates, but doesn’t think it will. Instead, he believes the central bank will hold off, but send hawkish signals instead.

Meanwhile, markets have already reacted to whatever they understand the outcome to be. Asian stock markets rose today on speculation that the Federal Reserve will resist the pressure to hike interest rates and the FTSE 100 index of leading UK shares has dipped by 12 points, or 0.2%, in early trading.

New Questions

Speculation abounds but by 18:00 GMT today, we should all know the answer. And then, the big questions will be: What effects will the rate increase have both locally and internationally? What will the markets do now? How will the dollar react?